Posts Tagged ‘micropayments’

Return of the Son of the End of Free, Part II

May 17th, 2009 by Reinder

Over the years, I've become skeptical of paid content as a viable model for most of the content being published online, particularly for webcomics. In the previous part, I discussed what I believe are the reasons micropayments have historically failed and free content resurged in the mid-2000s.

I believe Rupert Murdoch's plan to start charging for The Wall Street Journal online will also fail, but for a different, much simpler reason: this recession is much worse than the last one, and end users are keeping their wallets shut much more. Even if the problems with the infrastructure and the immediacy of micropayments are resolved and users finally start understanding the concept, they are going to pinch their pennies, hard, and refuse to pay for anything they can get for free elsewhere. Entertainment, which is much less fungible than news, will not be safe from this: if the money simply isn't there, people won't buy it and will instead go with the inferior good that they can afford. Or they will simply entertain themselves: the choice won't be between a paid Radiohead album and a free Hootie and the Blowfish album as Scott McCloud argued in the essay I quoted in Part I, but between a paid Radiohead album and a game of Monopoly with the family, a free knees-up at the Irish pub or an hour practicing Radiohead songs on the guitar.

However, there are two long-run scenarios in which I micropayments and subscriptions may win out. I hope these won't come to pass as neither of them will be pretty. They are The Big Content Squeeze of 2010 and the Google Power Grab Scenario. In both, Rupert Murdoch's assertion that the Internet will never be the same again will be correct.

The Big Content Squeeze of 2010
The recession continues through 2009 and into 2010 and it hits hard. Initially, this means more free content in the form of blogs as newly unemployed people turn to writing. However, it becomes harder to finance the content. Small-time bloggers move from their own hosted space to free bloghosts to save money. Then the free bloghosts stop being free and the blogs vanish.
Meanwhile, newspapers stop treating their free content as loss leaders, and start seeing them as the profit-eaters they really are. Some switch to micropayment solutions, which fail, before shutting own their sites. Others shut down at once. This robs the remaining bloggers of much of their material, because most news/politics/gossip/satire bloggers do not do original news gathering and are entirely parasitic on the so-called Mainstream Media (the idea that bloggers are "citizen journalists" is pure, unadulterated Bloggocks). The quality and interest level of those blogs drops and so do their revenues. Bit by bit, the entire Long Tail of all websites disappears. Comicspace loses its advertising revenues and its venture capital funding at the same time. Keenspot loses its advertising revenues. Both firms close their doors and only the most succesful comics hang on to their existence, on independent hosts and subsidized directly by their users. Eventually, the Short Head, the highest-quality, most popular websites, starts getting eaten as well. By that time, though, content is no longer abundantly available and is indeed getting quite scarce. People who want to read news or blogs or webcomics online have the choice between paying for them or not getting any at all. In this new landscape, micropayments are a viable model once the recession starts bottoming out. By time the recovery is finally under way, micropayments and the sites financed by them are entrenched, the infrastructure for content paid for by advertising is dead and gone and new, free content sites will not be immediately competitive because users will be loyal to the content they have already paid for.

This end result, of course, isn't all bad. The result of this Darwinian process will be a smaller number of sites that have high quality by a number of metrics. They won't waste the users' time, they will be well-made and worth paying for - for a time, at least. They will also have to stay strictly within the mainstream and within the boundaries of acceptable opinion and taste. There will not be a significant Long Tail of niche sites. As the successful media get entrenched, the lack of competition and the need to avoid giving offense may lead to blander, less interesting content - it will continue to very be good at a technical level but will it challenge the reader? And if it doesn't, where else will you go if you do want to be challenged?

The Google Power Grab
This scenario, on the other hand, is one whose outcome won't be good at all. In this one, Google develops a working micropayment system (currently, Google Checkout does not support true micropayments as defined back in 2000, but is suitable for larger payments. I don't know anyone who uses it, though), and sits down with News Corp and all the other big media outfits until they all sign up to use that system exclusively. Because Google already has your data, you probably already have an account with it and most people trust it far more than they should, it is in a position to make its system ubiquitous and immediate in one fell swoop, and it has the funding to ride out the rest of the recession. It can also give preferential treatment to sites covered under its micropayment system, making them show up first in searches and embedding micropayments code into its search links so these sites perform better than non-micropayment sites. People will still be reluctant to use them for as long as the recession lasts, but they will be pressured into accepting them earlier than if any other party supplies the micropayment service (because they will be shut out of the best search results if they don't) and once they get more money into their pockets again, they will start embracing them.

In this scenario, Google leverages its power to gain even more power, and unlike in the Big Squeeze scenario, the big media win without having to raise their game for even a moment. The landscape changes irrevocably, to the advantage of parties that are already entrenched.

I'm not happy with both scenarios. The first one seems more likely right now than the second, as I recently read an essay (on a Dutch newspaper's blog, no less - but I unfortunately didn't take note of where it was and can't find it anymore) in which the writer recommended that newspapers shut down their websites entirely so they'd stop competing with their paper editions. But I'll be glad if neither come to pass and consider not having a good, viable micropayments system on the web to be a small price to pay for that.

Return of the Son of the End of Free, Part I

May 17th, 2009 by Reinder

So the big media news last week was that Rupert Murdoch wants to start charging for the Wall Street Journal online, and the coverage brought back a word that I hadn't heard in a couple of years and that I didn't really expect to hear again: micropayments.

I'll talk about the new End of Free (there was a website by that name, once, but I can't find it anymore) and how I think it will play out in part II of this series, but I want to indulge in some nostalgia/give the younger readers a little history lesson first.

Ah, Micropayments. Scott McCloud loved them, Jakob Nielsen loved them, back in the days of the Dot.bomb. They were touted as an alternative to subscriptions beginning about a decade ago, when it first started becoming clear that banner ads weren't going to keep bringing in the $40 CPMs that they did back in 1997. When the 2001 recession hit and avertising revenue really tanked, demand for payment based content distribution models grew and a large number of firms popped up that offered content on either a subscription or a micropayment basis. Modern Tales was originally one of the subscription-based content providers; there was a micropayment-based site called Bitpass that was popular with cartooonists for a while, which I experimented with a bit half-heartedly at the time. Modern Tales, of course, is still here but it offers most (or in practice, all) of its services for free, financed mostly by advertising. Bitpass is gone. This seems to be the pattern everywhere, with only the formery subscription-based sites even lasting long enough to make the switch back to free content financed (just) by the much lower advertising CPMs common today.

What went wrong? Why didn't micropayments work out? I think there were three closely related reasons.

Firstly, micropayments didn't become immediate. There was no single infrastructure for them - instead there were a number of micropayments providers, plus some of the content providers themselves. Users had to sign up to a new site for each individual content provider or third-party scheme they came across, they had to get their account credentials, maybe make a deposit through a fourth party, thenthey could make the micropayment, then they could be redirected to the content they wanted. It was clunky and it meant that on top of the monetary micropayment, the user's time investment, at least for the first transaction, went through the roof. People online like immediacy and they hate uncertainty and waiting, so users weren't too keen on the whole process. So as Clay Shirky argued as early as 2000, people hated micropayments.

Secondly, users didn't just hate micropayments, they didn't understand them either. They did not understand the distinction between a micropayment and a payment, or between micropayments and subscriptions. Originally, a micropayment was defined as a small payment between a quarter and a fraction of a penny. By the time of the arrival of Bitpass in 2003, typical transactions offered were in the 25¢ to 75¢ range, and the fact that this was so was a big part of Scott McCloud's rebuttal to another Shirky piece accurately predicting Bitpass's failure, in which McCloud argued that this one would be different. By 2005, users in internet forums like the Comicgenesis forum were using the word "Micropayment" to refer to Modern Tales' subscription fees or regular Paypal donations. The term had been swept under the rug and never heard from again.

Third, the recession ended just at the time when the price of bandwidth and hosting plummeted. In other words, businesses started advertising online again as the cost of publishing came down dramatically. Free content became worthwhile again.

I haven't kept track of how the recession is affecting online ad revenue. My own ad income is up since I joined Webcomicsworld and ditched my Google ads, but that's not enough data to go on. However, I don't think it's a coincidence that this idea starts raising its head again in a new recession and comes from an industry that is having a really hard time.

In part II, I'll discuss some scenarios in which I think the idea may turn out to work after all. They are not going to be pleasant for people who like easy access to content (free or not) or